The rise and rapid collapse of Palestinian hopes invested in Barack Obama are laid bare in graphic detail in the leaked documents. They make clear that PLO leaders continue to regard a string of far-reaching concessions as a negotiated package which remains on the table for the US and Israel to pick up.

"The deal is there," the chief negotiator, Saeb Erekat, told the president's Middle East envoy, George Mitchell, early in the new administration. "With it you can develop the 'Obama plan' with your associates in Europe ... It is time for decisions." Two years later a deal that includes compromises on territory, Jerusalem and refugees has yet to be taken up.

The Palestinian Authority's great expectations of Obama were bolstered by the rapid appointment of Mitchell, the highly regarded veteran of the Northern Ireland peace process. They soared in June 2009 when Obama made his long-heralded speech to the Muslim world in Cairo.

But the circumstances were disastrous from the moment he was inaugurated on 20 January, two days after the Gaza war ended. The Israeli devastation of Gaza, Palestinian officials noted, "evokes not only anger, but among many, a critical reassessment of the wisdom of seeking peace through negotiations with Israel.".

The Annapolis negotiations, which had run into the sand by the end of 2008, "have also been pronounced dead – their failure due essentially to Israel's refusal to negotiate the two-state solution in good faith ... Confidence on the Palestinian street, with respect to its leadership, towards Israel, and the international community as a whole, is at an all-time low."

The following month Israeli elections produced a rightwing Likud-led coalition with no majority for a two-state solution and a commitment to expanding settlements in occupied territories. Palestinian leaders responded by demanding a freeze, including of all "natural growth". These were "not Palestinian preconditions, but Israeli obligations", President Mahmoud Abbas was briefed to tell Obama in May.

US officials were privately exasperated, the documents underline, pointing out that the Palestinians had negotiated before without a freeze. Erekat worried that Obama would make do with what he called "baby steps".

"He (Israeli prime minister, Binyamin Netanyahu) is going to say 'we will remove roadblocks, outposts, etc. But if a settler child needs a new bathroom, we will build it.' But he will continue to build E1 (a massive settlement project planned between Jerusalem and Ramallah) and demolish homes. He is a master of ambiguity."

Israel duly insisted that any freeze – or moratorium – could only be partial and temporary. PA leaders quickly saw the chance they had banked on slipping away. "So much for Obama and rapprochement," Erekat is recorded as saying. "There is not a new word! Give me something at least to save face!".

When the US agreed that Jerusalem could be exempted from the settlement freeze, Erekat said that would be acquiescing in "ethnic cleansing".

"The reality is," Mitchell privately told the PLO official in October 2009, "no negotiations is not in your interest. So we are to come up with a statement to give you a ladder to climb down on this issue – just like you asked …. Now you are arguing over the color of the ladder."

Erekat recalled Obama "telling all of us in the Arab and Muslim world in his speech in Cairo in June about a full settlement freeze". Mitchell replied: "You guys are now trying to come up with a history that Obama somehow invented the freeze. You and the Arabs have been calling for a freeze long before Obama. He did not pull it out of the air and impose it!

"You established it as a precondition. We tried very hard, and we know what you think of us because we failed. Fine. So you can look back 10, 20, 60 years from now without negotiations or we can try to move forward."

Mitchell hammered home the point. "Obama is not like previous administrations. In US politics there never was and there never will be a president as determined to resolve this conflict. So you can argue over words and delay indefinitely, so you lose the most important thing – this opportunity: the presence of a US president completely committed to achieving the objective you want."

But later that month, Erekat's frustration spilled over in an impassioned response which encapsulates the breakdown of two decades of peace process: "Nineteen years after the start of the process, it is time for decisions. Negotiations have been exhausted. We have thousands of pages of minutes on each issue. The Palestinians know they will be a country with limitations. They won't be like Egypt or Jordan. They won't have an army, air force or navy, and will have a third party to monitor ... Palestinians will need to know that 5 million refugees will not go back. The number will be agreed as one of the options. Also the number returning to their own state will depend on annual absorption capacity. There will be an international mechanism for resettling in other countries or in host states, and international mechanism for compensation. All these issues I've negotiated. They need decisions."

Netanyahu announced a 10-month settlement moratorium at the end of November, with East Jerusalem excluded.

"We are entering a critical period in our protracted conflict with Israel," Erekat wrote to France's foreign minister Bernard Kouchner as the year of false hopes drew to its end. "Scepticism and despondency have returned due to ... Israeli intransigence and continued colonisation."